Will China’s leadership change boost growth?

As China’s leadership transition gets underway in Beijing, observers are watching intently for signs that the world’s second largest economy could be prepared to free up its grip on the economy in exchange for higher growth.

But in his 90-minute opening address to the Party Congress, outgoing president Hu Jintao, gave little ground for hope that the Communist Party could be preparing to relinquish some state dominance of the economy.

In fact, Hu’s speech to the 2270 Communist delegates in the Great Hall of the People was remarkably similar to the one he had delivered to the previous congress five years earlier. He argued that China would continue with a “basic economic system in which public ownership is the mainstay and economic entities of diverse ownership develop together".

In his last important speech as leader, Hu also emphasised the importance of continued economic growth in a country that has grown from being the world’s sixth largest economy when he took over in 2002 and is now the world’s second largest. By 2020, he said, China’s GDP would be double its level in 2010.

Hu took the opportunity to emphasise the achievements of his decade-long reign, reminding his listeners that he had organised the successful Beijing Olympics, and that China had now reclaimed its international prestige. China’s success with high-tech ventures such as sending manned shuttles into space and its high-speed trains, he said, “show the superiority and the vitality of socialism with Chinese characteristics".

Many economists believe that Chinese growth – which has now fallen to around 7.5 per cent a year, the lowest rate since the 1997 Asian crisis – will only be boosted if Beijing is prepared to reduce the size and power of state-owned enterprises, which still dominate key industries such as finance, transport, telecommunications, energy, resources and media. What’s more, they point out that Chinese growth is becoming increasingly unbalanced, with investment accounting for a massive 50 per cent of GDP last year, while household spending fell to around 35 per cent of GDP.

Slower economic growth is fuelling social unrest and discontent about massive income inequality in China at a time when the country’s young urban population has become increasingly adept at dodging official censorship and expressing its criticism of the regime.

In his speech, Hu acknowledged that the rampant corruption among Chinese officials has become a major preoccupation for Chinese people. “If we fail to handle this issue well, it could prove fatal to the party" and the fall of the state, he warned.

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The Chinese Communist Party has spent much of this year grappling with political and financial scandals, including Bo Xilai, the former high-profile Chongqing party boss whose wife has been convicted of murdering a British businessman. Bo has now been stripped of all his party positions, clearing the way for him to be charged with corruption and abuse of power. Last month, the family of outgoing premier Wen Jiabao took the unusual step of issuing a statement denying a media report that it had amassed a fortune worth $2.7 billion.

Although his own efforts of political reform have been modest, Hu noted the need for greater emphasis on improving China’s democratic system.

But his words met a sceptical response. On Weibo, the Chinese version of Twitter, one commentator highlighted the stark differences between the Chinese and US elections. “In the US election, no one knew until the last moment that Obama had won and Romney congratulated him. In the Chinese election, we knew a year ahead who had won and who had lost, and the family of the loser is in prison" – a clear reference to Bo Xilai.